When market makes a big move - traders always wonder what next. Generally, it has been seen that after a large move - stock quietly consolidates before making another move. The consolidation happens when stocks trades sideways with lots of doji formations.
A doji is usually a relatively short candlestick with no real body, or very little real body. It indicates that the opening and closing prices for the period were at the exact same level or very close together. Doji after a large bullish move indicates that market is consolidating gains/taking rest before another move. Let us take one recent example:
Here's the ICICI BANK stock daily Chart
As you can see in the chart above: ICICI Bank made a new high on August 18 2014. Now, look at what stock has done post that: four doji formations. This means that stock is consolidating the gains before it can make another move.
What does this mean?
ICICI Bank even after making such a big move is not witnessing aggressive profit booking. The supply even at this elevated level is getting absorbed by buyers - reflected by small dojis. Once, this small profit booking is over - stock would resume uptrend. Now there is no certainty in the market. As long as stock stays above 1500 - bulls will continue to believe that the next move is up and not down. At this point of time, that's what stock is telling us. We will see what happens next. The idea of the post was to tell you how consolidation looks like.
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers